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Nonprofit Credit Counselors vs. Debt Relief Companies

Last Updated: May 17, 2024
4 min read

Key points about: the differences between a nonprofit credit counselor and a debt relief company

  1. Nonprofit credit counselors typically offer free or low-cost services, while debt relief companies may charge higher fees.

  2. Nonprofit credit counselors offer personalized financial advice that helps you create a plan to repay your debt and establish better habits moving forward.

  3. Debt relief companies may use a generalized approach to settling your debt, with little focus on your overall financial health.

Reputable nonprofit credit counseling may offer credit counselors who are trained and certified in consumer credit, debt management, and other money matters. In contrast, many debt relief companies may focus on making a profit rather than helping consumers better manage their financial lives.

The difference between nonprofit credit counselors and debt relief companies is important to understand if you’re seeking help managing unsecured debt, such as credit cards, personal loans, student loans, or even medical bills. Read on to learn what you need to know before reaching out for assistance from a national debt relief company, a nonprofit credit counselor, or elsewhere. With the best debt relief option for your unique circumstances, you could repair your finances and get back on track.

How can a nonprofit credit counselor help you?

Nonprofit credit counselors may offer more accessible and comprehensive solutions to your money matters than a debt relief company. Here are some of the benefits of working with a nonprofit credit counselor:

  • Free counseling services: Many nonprofit credit counseling agencies offer their financial counseling services free of charge and with no obligations.
  • Low-cost debt management plan: Nonprofit credit counseling agencies can also help you develop a debt management plan (DMP) for a low monthly payment. It’s a good idea to review all your options and understand exactly what a DMP offers before agreeing to the terms.
  • Highly qualified support: Nonprofit credit counselors typically undergo intensive training and must pass stringent tests to get certified to counsel consumers on financial matters, such as credit card debt resolution, mortgages, student loans, and bankruptcy.
  • Holistic financial support: A credit counselor may be able to work with you to address your debt, help you figure out why you got into debt, and how to develop better financial habits moving forward. 

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With no harm to your credit score1

What is the process of working with a nonprofit credit counselor?

Most nonprofit credit counseling agencies offer counseling online, by phone, or in person.

A nonprofit credit counselor typically reviews your overall financial picture, including income, bills, debt, and other obligations such as child support. Taking this information into account, the counselor can help you decide on a plan to deal with your debt. The counselor can also help you create a realistic household budget that includes debt repayment.

According to, if you qualify, your credit counselor may offer a debt management plan, which typically helps lower the interest you’ll pay and establishes a reasonable timeline for repayment. With a DMP, you, your counselor, and the creditors you owe will agree to a specific timeline for repayment. You’ll make monthly payments into an account with a credit counselor, who then pays your bills. This process proceeds until your debts are paid off.

If you enroll in a debt management plan (DMP) with a nonprofit credit counseling agency, it may result in closing your unsecured credit accounts. Closing accounts can lower your credit score by reducing your available credit and lowering the average age of your accounts. However, this can still pay off in the longer term. 

One benefit of a DMP is that you’ll still make on-time, acceptable payments to your creditors. The same can’t be said for debt relief companies that may stop payments to your accounts while negotiating your debt settlement—potentially causing more significant damage to your credit.

You may need to do some legwork to ensure a nonprofit credit counseling organization is legitimate. It’s important to ask questions about credit counseling services to choose a reputable agency. 

Did you know?

Once you get your credit card debt under control, you may want to rebuild your credit score. A secured credit card may help. Secured cards don’t typically require a credit score. Instead, you provide a deposit to apply. These can be helpful options for people with lower credit scores.

What you should know about debt relief companies

A debt relief company is often a for-profit business that charges consumers for services related to debt resolution. Debt relief companies may also be called debt settlement companies or debt consolidation companies and may vary in terms of what they can achieve.

These companies may have you open an account with them (which will be managed by a third party) and make monthly payments. Typically, you’ll pay into the account and cease payments to your credit cards or other loans, the Consumer Financial Protection Bureau explains. Once you’ve paid a certain amount into the account—determined by the debt settlement company—one of their representatives will reach out to your creditors to make settlement offers.

By signing an agreement with a debt relief company, you usually transfer control to the company, allowing them to make decisions about your accounts going forward.

Keep in mind that the consolidation offered by debt relief companies is different from consolidating your debt through a financial product such as a personal loan, credit card balance transfer, or home equity loan from your bank or credit union. These forms of debt consolidation loan leave you solely in charge of managing your debt, and you may need a good credit score to qualify.

Weighing your debt settlement options

Still not sure where to turn? Perhaps an example will be helpful: Say Sally Smith owes $10,000 across five credit cards. She goes to a debt relief company that charges a fee of 25% of the total amount of debt settled. If the debt relief company can get every creditor to settle for 50% of what Sally owes, she may have to come up with $5,000 quickly to pay her creditors, on top of paying a $1,250 fee to the debt relief company.

In contrast, if Sally signed up for a debt management plan through a credit counseling agency, according to Experian, she might pay a small set-up fee and typically around a $30 monthly payment for the plan. However, the nonprofit agency may be able to negotiate lower interest rates and fee waivers with each creditor, according to Experian—possibly resulting in more manageable monthly payments and more savings over the course of her repayment than the cost of debt settlement with a debt relief company.

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  1. There is no hard inquiry to your credit report to check if you’re pre-approved. If you’re pre-approved, and you move forward with submitting an application for the credit card, it will result in a hard inquiry which may impact your credit score. Receiving a pre-approval offer does not guarantee approval. Applicants applying without a social security number are not eligible to receive pre-approval offers. Card applicants cannot be pre-approved for the NHL Discover Card.

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